By Tamora Vidaillet and Huw Jones
PARIS (Reuters) - European leaders raced against the clock on Sunday to clinch a rescue strategy for banks battered by the worst financial crisis since the 1930s, under intense pressure to throw them a lifeline before world markets reopen.
At a summit in Paris, the focus fixed firmly on how much state money governments could mobilize to buy into banks if needed, and if they would also underwrite lending between banks, paralyzed for now by fear and distrust.
French President Nicolas Sarkozy told reporters the meeting would come up with an "ambitious and coordinated plan" to tackle the crisis, which spread from the United States more than a year ago but hit fever pitch in recent weeks.
Officials suggested action rather than rhetoric could emerge from a gathering that involved the leaders of Britain and the 15 countries of the euro currency zone as well as European Central Bank President Jean-Claude Trichet.
"If market confidence is not restored this weekend, it's game over," said Marco Annunziata, chief economist for UniCredit, an Italian bank which is among many whose shares have been hurt in panic-stricken stock markets.
The American Standard & Poor's 500 index tumbled more than 18 percent last week, its worst weekly fall on record. European stocks plunged 22 percent and Tokyo's Nikkei crashed 24 percent.
Money markets, less visible to the public, are essentially on life support and dependent on regular, massive injections of emergency liquidity from central banks across the globe because banks themselves will not lend to each other as they used to.
The Paris meeting was hastily arranged by Sarkozy on the heels of a G7 summit of rich nations in Washington that offered no concrete, collective action but promised to do whatever was needed to unfreeze credit markets.
NO SINGLE RESCUE POT?
British Prime Minister Gordon Brown, whose country has not adopted the euro currency, was invited to Paris because the euro zone wanted possibly to replicate something like the rescue plan announced in London last week.
Sarkozy and German leader Angela Merkel, who met in France on Saturday, said they had prepared a number of solutions to try to restore normal flows in credit markets.
At a Paris summit a week earlier, Merkel rejected the idea of a collective European rescue fund for banks and Sarkozy said he had not proposed one.
That would not preclude governments on Sunday saying they were ready to pay up even if they do not put all the money in one pot or surrender control of what they offer.
Before the full summit, Sarkozy held a preliminary session with Brown, the ECB's Trichet, European Commission President Jose Manuel Barroso and Jean-Claude Juncker, Luxembourg prime minister and chief spokesman for euro zone finance ministers.
Britain's rescue plan makes available 50 billion pounds ($86 billion) of taxpayers' money for injection into its banks and, crucially, calls for underwriting interbank lending.
In an interview with the Observer newspaper on Sunday, Brown said he would try to broker a Europe-wide bail-out of banks modeled on his plan, warning that the 'stakes could not be higher' for jobs, mortgages and the future of the economy."
In London, big British banks were in talks with government officials and regulators and were likely to announce plans to recapitalize early on Monday, according to a person familiar with the matter.
The talks there were to determine how much capital each bank needs from the 50 billion pounds ($86 billion) offered by Britain on Wednesday, said the source, who declined to be identified. Sarkozy said he would announce some specific French measures for the domestic banking sector on Monday.
On Saturday, media reports said Germany was readying a rescue package that could be worth up to 400 billion euros, including the injection of equity capital worth "double digit" billions into its banks and guarantees for interbank lending.
(Writing by Brian Love, with reporting by Francois Murphy, Noah Barkin, Giuseppe Fonte, Anna Willard and Crispian Balmer, plus James Mackenzie in Washington)
